Over beers on Christmas Eve, one of my oldest and best friends from childhood gives me — the question. I’ve been hearing it over and over from subscribers. And I’ve been hearing it from anybody that I talk to about the markets, the economy, politics and policies — all of which are increasingly the same thing. “I’ve got some money put away, but I don’t know what to do with it. What should I do?”

Everybody is scared and trying to figure out how to navigate the strange new economy that the Republican/Democrat regime has driven us into over the last couple decades and drove home in the last three years since the so-called financial crisis hit. Whether it’s my recently retired friends, a cousin who’s decade-old business has started booming, former partners from my hedge fund days, or even evil, bailed-out, welfare dudes from Goldman Sachs (who remarkably still talk to me after all my justifiable disgust at their firm and them individually), are confused about how best to diversify, hedge and simply invest in 2011 and on.

So let’s step back today and give some rough guidelines for our portfolios and how we should be balancing them with different asset classes and allocations.

Now obviously, you need to tailor any of this advice to your own time horizons, goals, and assets. For example, if you’re in your 60s, you need to be less worried about how much money you’re going to have in 50 years than the 30 year old professional. If you’re worth $10 million, then you’ll probably want to be a little more aggressive with some of that capital than the guy with $50,000 to play with. Regardless, the fact is that we all want to protect our capital, see it grow and probably get at least a little bit of dividend/cash flows from it. So here are some basic guidelines that all of us can use.

Stocks

The markets are relatively cheap right here, right now, and as I’ve explained before, I do think you want to try to time the markets by allocating more money into your stock portfolio when stocks are historically cheap and selling them when stocks are hitting all time highs and getting expensive.

This can obviously be harder than it sounds. We all know so many people who have gotten aggressive with their stock portfolios when the economy seems great and the boom seems endless only to lose everything or almost everything on the way back down.

Few people have gotten back to where they were in 2007 or — worse — where they were back in 2000. With stocks right now about double where they were at the bottom of the 2008 lows and also about double where they were at the bottom of the 2002 lows, but 30% below their 2007 highs and also way lower than their 2000 highs, this is neither the time to be aggressively long or to be aggressively getting out of equity exposure.

But I’d probably go back to a rough way of determining how much you should allocate to stocks based on your age: Subtract your age from 100 and that’s how much you should have of your overall savings exposed to the stock market when stocks are very cheap. Let’s use my old best friend as an example. He’s 35 or so, which means the next time the stock market crashes, he probably should have 65% of his savings in the stock market (via equity mutual funds and/or individual stocks and/or smart option trading as I outlined for Cisco two weeks ago in this newsletter).

At this stage, after having seen the markets rally from its most recent crash back in 2008, but being far away from its past highs, he should, as we have in the Revolution Investing model portfolio, trimmed back some of that exposure and probably be closer to 50% or so invested in stocks for now. Someone 60 years old should probably be closer to 40% in the stock market at the next crash and closer to 30% in stocks now.

Bonds

Most analysts tell you that you should have some good exposure to bonds, depending on your age and income needs too. You can ignore those idiots. What kind of investor seeks 3%-5% yields to return less than inflation by lending money to corporations — many of which would have gone of out business and failed to pay back bondholders if not for the excessive quantitative easings and outright bailouts for these companies. Companies such as Goldman Sachs, General Electric and even Berkshire Hathaway with all its investments in the “too big to fail” banks and insurance companies.

Treasuries pay even less than corporate bonds and you get a better dividend yield just owning Microsoft, Intel or Verizon right now. Bonds are at historic highs and are terribly expensive right now and I wouldn’t mess with a bond or a bond fund or a bond mutual fund with any more than 10% of my savings. Probably closer to 0%.

Inflation bets

Most analysts will also tell you that you should be investing in gold and silver to fight inflation. That has certainly been good advice since the bailouts/overt corporate welfare movement by the Republican/Democrat regime in power kicked in over the last three years.

But gold and silver are themselves now at historic, all time highs and are now risk having run ahead of the inflation which they do help hedge. Does trillion dollar press pumping trump a mass move to the same trade? Is there anybody left to buy gold?

We made some huge gains in gold back in the early days of the bailout and more recently in our inflation hedge via the PowerShares DB Agriculture Fund. Inflation in the things we need (food, clothing, gas, oil, etc) will far outpace inflation in gold and silver, so I’d stick with betting on higher food/sustenance prices rather than just higher metal prices.

Real estate

The single biggest concern about real estate is that the robo-signing/mortgage fraud and all the other anarchic disregard for rule of law that the Republican/Democrat regime has implicitly and explicitly refused to prosecute destroys the concept of private property.

Couple that with the fact that the U.S. government is now the mortgage holder for more than 70% of all mortgages in this country (and that doesn’t include the other 30% owned by the government-sponsored/bailed out “private” banks) and we’ve got a rather socialist/communist real estate paradigm.

The flip side is that if the Republican/Democrat regime does actually take us through to the end game of the communist land system they’ve been steadily driving us toward for the last thirty years or so, then the entire economy and stock markets and the rest of your savings (not to mention the entire fabric of society) will collapse anyway, so why worry about it? Seriously, that’s how bad things will get if you don’t, as voters, force the government to force its bureaucracies to start enforcing the law.

I believe that America will return to private property rule of law and that the criminals, both executive and on down, will eventually be punished for their frauds, theft and corruption and that’s part of why you have to be willing to look at real estate as an investment here. Anywhere like Vegas or Florida or even in my hometown of Ruidoso, NM, where real estate values are down 30-50% from their levels just two years ago, are probably the best places to look for real estate bargains. But all real estate is local, and I would recommend sticking with locales you know well.

Cash

Cash (try to stay away from the money market funds which are yet another welfare/bailed out financial industry) won’t give you any returns. But at least you won’t lose money by staying in cash. In the last couple years, we’ve seen investors willing to buy Treasuries at a negative return — essentially saying they’ll lend the government $1 just to get 99 cents back tomorrow. That’s a little bit what holding cash is likely to be like, as inflation will eat away at the value of your money.

But that’s why you use the other parts of your savings to try to hedge against that inflation and get returns elsewhere. Because holding cash is unavoidable for investors and unfortunately, Ben Bernanke and his Republican/Democrat enablers have put all of us savers in a position of losing the value of the monetary gains of all our hard work and smarts. Not cool, and again, why you need to use your votes to fight these people. Both parties, equally, that is. Because both parties think it’s okay that they destroy the value of your cash money.

Whatever money you don’t put in stocks, real estate and inflation hedges, should just stay in cash. Consider inflation to be exactly what it truly is — the cruelest tax that will likely cost you somewhere between 5%-10% per year for the next few years.

Finally and perhaps most importantly, you want to always invest in yourself. Why not start a business or a Web site? Or use some of that money to travel and meet with people who can help you in your career path.

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About The Cody Word

Cody Willard writes the Revolution Investing investment newsletter for MarketWatch and posts the trades from his personal account at TradingWithCody.com He is the founder of WallStreetAll-Stars.com and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and is on the University of New Mexico Alumni Board. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. Cody, a former hedge fund manager, and his stock picks and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.